1. Field of the Invention
This invention relates generally to the detection of fraud or abuse of hierarchical coded payment systems, including for example Prospective Payment Systems. In particular, the invention relates to automated fraud detection using predictive modeling and analysis of payment coding methodologies to identify at multiple levels of the hierarchical coded payment systems patterns of payment coding having high probabilities of fraud. This invention also relates to profiling of the various entities that are involved in such hierarchical coded payment systems.
2. Background of Invention
The Scope of Healthcare Fraud Problems
According to the Center for Medicare and Medicaid Services (CMS—formerly the Health Care Financing Administration (HCFA)), annual health care expenditures in the United States totaled over $1.4 trillion dollars in 2001, and are expected to increase 6.5% a year. Of this amount, a significant percentage is paid on fraudulent or abusive claims, though the amount lost to health care fraud and abuse can never be quantified to the dollar. In May 1992, U.S. General Accounting Office (GAO) reported that the loss amounted to as much as 10% of the nation's total annual health care expenditure, approximately $84 billion. A July 1997 audit of annual Medicare payments by the Inspector General found that approximately 14 percent of Medicare payments (about $23.2 billion) made in fiscal year 1996 was improperly paid, due to fraud, abuse, and the lack of medical documentation to support claims. Many private insurers estimate the proportion of health care dollars lost to fraud to be in the range of 3-5%, which amounts to roughly $30-$50 billion, annually. It is widely accepted that losses due to fraud and abuse are an enormous drain on both the public and private healthcare systems.
The Hierarchical Coded Payment System
One type of payment system for services involves a hierarchical coded payment system. With the hierarchical coded payment system, service providers and/or service users (e.g., facilities, institutions, beneficiaries) are paid specific predetermined payment rates for types of services rendered. Typically, the hierarchical coded payment system comprises a multiple-level classification scheme, where payment is determined by coding a particular transaction or service according to a hierarchical classification and payment structure. As will be described below, one example of such a hierarchical coded payment system includes the Prospective Payment System (PPS) used by the CMS to administer payments from healthcare providers under Medicare, or similar PPS used by Medicaid, other government programs, as well as private health insurance carriers. Fraudulent and abusive coding practices by service providers using the PPS continue to be ineffectively addressed by conventional approaches.
Conventional Approach for Fraud Detection in the Prospective Payment System
The PPS legislation was passed in 1982 by Congress to make the Medicare hospital payment system more cost-efficient for inpatient services. In its continued effort to curtail rising Medicare costs and maintain solvency, Congress also passed the 1997 Balanced Budget Act (BBA), which broadened the PPS approach to several other types of medical care such as PPS—exempt hospitals, inpatient rehabilitation hospital services, skilled nursing facility services, hospital outpatient department services, outpatient rehabilitation services, and home health services. Prior to the introduction of each of these PPS approaches, the Medicare payments were based on a “fee-for-service” system operating under a rate schedule. Under Medicare PPS, the amount paid for medical care is based on a clinical assessment and industry norms, regardless of the actual cost of care (with some adjustments for regional cost differences and other factors). Providers are paid a fixed rate (either per diem or an overall rate, depending on the type of facility) for an illness or a stay at a facility based on the average industry costs of caring for patients.
Another way of characterizing PPS approaches, is that a facility gets paid for an entire episode of care or set of services, rather than for each individual transaction of service provision. The amount each facility gets paid depends upon the classification of the services received by the patient. The method of classification varies according to the type of facility. For example, the classification may depend on the diagnosis or the severity of a medical condition requiring treatment.
Implementation of the PPS system was phased into Medicare gradually, with hospitals commencing in 1983, Skilled Nursing Facilities (SNFs) in 1998, and Home-Health Agencies (HHA) in 2000 and Outpatient Hospital facilities in 2001, to be followed by Inpatient Rehabilitation facilities, Swing Bed facilities, and Long Term Care Hospitals in 2002. Eventually, almost all of Medicare is expected to eventually convert to the PPS, although the full timetable has not been set for this process. The PPS approach was initially conceived for the Medicare payment system; however, other institutions are increasingly adopting the PPS, including Medicaid, private insurers, and national single-payer healthcare systems.
The intent of the PPS is to ensure that service providers, facilities in particular, provide patient care that is centered on both cost-effectiveness and high quality, as opposed to the old Medicare payment system, which focused on quality alone without regard to cost. Under the PPS, facilities are encouraged to deliver clinically appropriate care in a cost-effective manner. It was also hoped that the PPS would reduce the amount of fraud and abuse in claims for payment for services rendered by reducing the opportunity for such activities. However, fraudulent practices are still on the rise. For example, in the case of PPS coded payment classifications based on diagnosis, the facility may nevertheless commit fraud by manipulating the diagnosis codes to put the customer (i.e., patient) into a different (e.g., more expensive) category, resulting in a higher payment being collected by the facility.
Conventional approaches to detecting such fraud in a hierarchical coded payment system are directed at detecting fraud for a single transaction of service. In the case of the PPS, the conventional approach might involve looking for fraud at the single level of diagnosis codes (e.g., Principal Diagnosis codes used by Inpatient Hospital PPS). However, this approach suffers from the limitation of fraud detection analysis focused on only a portion of all data representing coding practices of service providers. As a result, fraud cannot be detected at different levels of the hierarchical coded payment system using conventional approaches.
Accordingly, to detect fraudulent and abusive practices and behavioral patterns, it would be beneficial to use more of the available information in a more general context of the practice of service providers requesting payment for services through a hierarchical coded payment system. What is needed is an automated system and method that detects fraud and abuse within various classification elements of the hierarchical coded payment system, and across each classification level of the hierarchical coded payment system. Additionally, what is needed is an approach that detects fraud and abuse comprehensively throughout the hierarchical coded payment system.